The key problem that I believe conservativism has to face in 2013 and the near future is that it doesn't have an answer to what has become the most critical problem for the 21st century economy: inequality.

There has been a historical tendency over the past 15 years and three Presidents to concentrate more and more wealth with the wealthy, and less and less wealth with everybody else. Inequality is at all time highs on that front, and it gives the middle and lower classes less spending money, slogs down the economy, and ultimately splits the economic pie even greater into the hands of the few.

Liberalism has a whole host of solutions, bordering from the more free market tendencies of the Democratic Party and the mainstream liberal movement, to the more socialist suggestions frequently made by the party's left wing. Some of them can be argued as legitimately good ideas (raising the minimum wage, capping the multi-billion dollar tax breaks for huge corporations, any number of investments in college education), some of them are obviously more on the fringe.

Conservativism's answer seems to be singular and ineffective: get "government out of the way," undo the massive structure of government regulation, and the economy will grow. And like a rising tide that lifts all boats (think "trickle down" economics), as the economy grows, so too will the fortunes of the lower and middle classes. Honestly, if conservativism has more of a message than this right now with regards to inequality, I've missed it.

The problem with this message, and conservativism in general right now, is that it seems outdated for 2013. As the economy has grown at times throughout the past fifteen years, the middle class and working poor have seen less and a less of a return on that progress, and the upper class has soared. In other words, the absolute core conservative response to the biggest issue affecting working Americans in 2013 is no longer applicable. It had some bearing, perhaps, in previous decades, but we now reside in an era where this dynamic no longer holds water.

Economists are reportedly attempting to figure out why that is the case. A decrease in education quality seems, to me, to be the most convincing cause, although obviously this is something that deserves a holistic analysis.

But either way, I don't really see convincing analysis that growth is enough anymore. It seems that a reduction in inequality seems now to be just as important.

Growth isn’t enough to help the middle class
By Jim Tankersley
Published: February 13

Two kinds of middle-class Americans are struggling today — people who can’t find any work or enough work, and full-timers who can’t seem to get ahead.

Democrats and Republicans prescribe economic growth to help both groups. There was a time that would have been enough. But not today.

In the past three recoveries from recession, U.S. growth has not produced anywhere close to the job and income gains that previous generations of workers enjoyed. The wealthy have continued to do well. But a percentage point of increased growth today simply delivers fewer jobs across the economy and less money in the pockets of middle-class families than an identical point of growth produced in the 40 years after World War II.

That has been painfully apparent in the current recovery. Even as the Obama administration touts the return of economic growth, millions of Americans are not seeing an accompanying revival of better, higher-paying jobs.

The consequences of this breakdown are only now dawning on many economists and have not gained widespread attention among policymakers in Washington. Many lawmakers have yet to even acknowledge the problem. But repairing this link is arguably the most critical policy challenge for anyone who wants to lift the middle class.

Economists are not clear how the economy got to the point where growth drives far less job creation and broadly shared prosperity than it used to. Some theorize that a major factor was globalization, which enabled companies to lay off highly paid workers in the United States during recessions and replace them with lower-paid ones overseas during recoveries.

There is even less agreement on policy prescriptions. Some liberal economists argue that the government should take more-aggressive steps to redistribute wealth. Many economists believe more education will improve the skills of American workers, helping them obtain higher-paying jobs. And still others say the government should seek to reduce the cost of businesses to create new jobs.

The problem is relatively new. From 1948 through 1982, recessions and recoveries followed a tight pattern. Growth plunged in the downturn, then spiked quickly, often thanks to aggressive interest rate cuts by the Federal Reserve. When growth returned, so did job creation, and workers generally shared in the spoils of new economic output.

You can see those patterns in comparisons of job creation and growth rates across post-World War II recoveries. Starting in 1949 and continuing for more than 30 years, once the economy started to grow after a recession, major job creation usually followed within about a year.

At the height of those recoveries, every percentage point of economic growth typically spurred about six-tenths of a percentage point of job growth, when compared with the start of the recovery. You could call that number the “job intensity” of growth.

The pattern began to break down in the 1992 recovery, which began under President George H.W. Bush. It took about three years — instead of one — for job creation to ramp up, even when the economy was growing. Even then, the “job intensity” of that recovery barely topped 0.4 percent, or about two-thirds the normal rate.

The next two recoveries were even worse. Three and a half years into the recovery that began in 2001 under President George W. Bush, job intensity was stuck at less than 0.2 percent. The recovery under President Obama is now up to an intensity of 0.3 percent, or about half the historical average.

Middle-class income growth looks even worse for those recoveries. From 1992 to 1994, and again from 2002 to 2004, real median household incomes fell — even though the economy grew more than 6 percent, after adjustments for inflation, in both cases. From 2009 to 2011 the economy grew more than 4 percent, but real median incomes grew by 0.5 percent.

In contrast, from 1982 to 1984, the economy grew by nearly 11 percent and real median incomes grew by 5 percent.

Today, nearly four years after the Great Recession, 12 million Americans are actively looking for work but can’t find a job; 11 million others are stuck working part time when they would like to be full time, or they would like to work but are too discouraged to job-hunt. Meanwhile, workers’ median wages were lower at the end of 2012, after adjustments for inflation, than they were at the end of 2003. Real household income was lower in 2011 than it was in 1989.

Obama alluded to the breakdown between growth and middle-class wages and jobs in his State of the Union address. “Every day,” he said, “we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?”

But outside of some targeted help for manufacturing jobs and some new investments in skills training, the proposals Obama offered focused comparatively little on repairing the relationship between growth and jobs, or growth and income. Obama’s boldest plans included increasing the minimum wage and guaranteeing every child a preschool education. Both aim largely at boosting poorer Americans and helping their children gain a better shot at landing the higher-paying jobs.

The Republican response to Obama’s speech did not appear to nod to the new reality at all. Sen. Marco Rubio (Fla.) said that “economic growth is the best way to help the middle class” and offered few job-creation proposals that appeared materially different from what Republican politicians have pushed since the 1980s.

Economists are still trying to sort out what broke the historical links between growth and jobs/incomes.

Economists are still trying to sort out what broke the historical links between growth and jobs/incomes.

Federal Reserve Bank of New York economists Erica Groshen and Simon Potter concluded in a 2003 paper that the recoveries from the 1990 and 2001 recessions were largely “jobless” because employers had fundamentally changed how they responded to recessions. In the past, firms laid off workers during downturns but called them back when the economy picked up again. Now, they are using recessions as a trigger to lay off less-productive workers, never to hire them back.

Economists at the liberal Economic Policy Institute trace the problem to a series of policy choices that, they say, have eroded workers’ ability to secure rising incomes. Those choices include industry deregulation and the opening of global markets on unfavorable terms for U.S. workers.

In the latest edition of their book “The State of Working America,” EPI economists argue that an “increasingly well-paid financial sector and policies regarding executive compensation fueled wage growth at the top and the rise of the top 1 percent’s incomes” at the expense of average workers.

Robert Shapiro, an economist who advised Bill Clinton on the campaign trail and in the White House, traces the change to increased global competition.

“It makes it hard for firms to pass along their cost increases — for health care, energy and so on — in higher prices,” he said. “So instead they cut other costs, starting with jobs and wages.”

Shapiro said the best way to restart job creation is to help businesses cut the costs of hiring, including by reducing the employer side of the payroll tax and pushing more aggressive efforts to hold down health-care cost increases.

Obama seems to have embraced an approach pushed by Harvard University economists Claudia Goldin and Lawrence Katz: helping more Americans graduate from college and go on to high-skilled, higher-paying jobs. It’s a longer-term bet. But as senior administration officials like to say, the problem didn’t start overnight, and it’s not likely to be solved overnight, either.

A progressive tax rate does not hamper someone wanting to make more money because, gasp, even after tax the individual is still making more money. If you make 50,000 dollars one year and a million the next, even though you pay a high tax rate a portion of that income(i'm not sure on the cut offs) you still net a lot more money than the guy who only made fifty thousand.

Are you really making a toddlers argument that if you can't have all you don't want any?

Would you think its fair if you paid the exact same entrance fee for a service as everyone else, but some people benefit more, others less?
Or, is it fair if a person benefits the most from a service, their rate of pay should be proportional to that?

It's not at all clear to me that wealthy people benefit more from public resources.

And no, I'm not making a toddler's argument. Am I making an argument to a toddler?

If we have two people who each make $50k and pay the same taxes. Now let's say they both want to get a second job that pays $30k. One of them is going to pay 25% on that $30k and the other is going to pay 30% on that $30k because they live in a jurisdiction that has a more progressive tax system.

After taxes, the first person has $22,500 in his pocket from his second job. The second person only has $21,000 in his pocket. Which guy is going to find it harder to move up the social ladder?

Or in terms of fairness, compare two people who have the exact same income over a two year period. One of them earns it in two equal portions (let's say $50k per year) and the other goes from famine to feast because he's a salesman subject to the health of the economy ($20k in year 1 and $80k in year 2). If you have a two rate tax code that includes a 10% rate for income up to $60k and 25% beyond that, the first person ends up with $90k in his pocket and the second person ends up with only $87k for the sin of not having a steady income. Is that what you call fair?

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“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

Tax shelters are not problems like they were pre-86. As the top marginal rates have gone back up, some tax benefits have crept back into the system, but they're nothing like the passive investment shelters (e.g. chinchilla farms) of the 70s. They will be if rates keep getting pushed up though. You can count on that.

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“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

Tax shelters are not problems like they were pre-86. As the top marginal rates have gone back up, some tax benefits have crept back into the system, but they're nothing like the passive investment shelters (e.g. chinchilla farms) of the 70s. They will be if rates keep getting pushed up though. You can count on that.

Are you ****ing serious? Carried interest for PE guys, transfer pricing, LPs, Swiss bank accounts (up until a few years ago), Cayman island crap like the thread I started.

Tax shelters are just as much a problem now as then. The problem is that the gop has consistently defanged enforcement agencies so the IRS goes after small fries instead of large tax cheats.

I don't accept the premise that the wealthy benefit more from public resources.

Really? They don't benefit more from courts to enforce/redress their contracts, or the educated workforce they employ, or the police that protect their investments? I could carry on but you are being absurd.

Are you ****ing serious? Carried interest for PE guys, transfer pricing, LPs, Swiss bank accounts (up until a few years ago), Cayman island crap like the thread I started.

Tax shelters are just as much a problem now as then. The problem is that the gop has consistently defanged enforcement agencies so the IRS goes after small fries instead of large tax cheats.

This is simply wrong. To the extent that we have economically detrimental loopholes now, we should get rid of them in exchange for lower rates just like we did when we had even more of them prior to the 1986 reform.

By the way, the problem is that democrats keep trying to crank up the top marginal rates making it far more worthwhile for wealthy taxpayers to lobby both parties for tax breaks (including campaign contributions to both parties for their "consideration").

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“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

Really? They don't benefit more from courts to enforce/redress their contracts, or the educated workforce they employ, or the police that protect their investments? I could carry on but you are being absurd.

No, they don't. Those benefits are definitely nice, but the benefit of being in the poor or working class here in the US versus being in the poor or working class in the third world is priceless, thanks in large part to public accommodations, consumer protections, mandated benefits and the social safety net.

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“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

No, they don't. Those benefits are definitely nice, but the benefit of being in the poor or working class here in the US versus being in the poor or working class in the third world is priceless, thanks in large part to public accommodations, consumer protections, mandated benefits and the social safety net.

Ok patty. Being poor or working class in the United States is no picnic. I like how you rely on these absurd comparisons to stick to your talking points.

For some one who is supposedly such a patriot, why do you insist on measuring us against 3rd world countries? We are the USA. We are the best but that doesn't mean we can't do things better.

Ok patty. Being poor or working class in the United States is no picnic. I like how you rely on these absurd comparisons to stick to your talking points.

For some one who is supposedly such a patriot, why do you insist on measuring us against 3rd world countries? We are the USA. We are the best but that doesn't mean we can't do things better.

We're talking about who benefits from our society. We can compare it to some hypothetical state of nature if you want, but I think it makes more sense to compare it to other societies that actually exist.

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“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

No, I didn't rewrite history, you are getting lost in the argument. We are talking about tax rates. My position was that we should flatten the rate structure (i.e. reducing top end marginal rates). You prefer a more progressive system. Reagan NEVER increased marginal rates. He decreased them substantially at least twice during his 8 years in office (top rate went from 70% to 50% early in his first term and then down to 28%* in 1986).

*I think there were some circumstances where your marginal rate could be a little higher than 28%, but off the top of my head I don't remember what they were.

You rewrite history. Reagan's income tax cut in 81, down to 50 percent resulted in a large deficit and in 82 the country was in a recession. In order to make up for the lost revenue from that tax cut, Reagan raised taxes every year he was in office, except the first and last. In response to cutting the top tax rate, he had to pass The Tax Equity and Fiscal Responsibility Act of 82, one of the largest tax increases in American History.

Cutting the top tax rate resulted in budget deficits, and a increase in inequality. Reagan took more money from the middle class in order for the rich to have a lower tax rate. That's a transfer of wealth in my book.

We're talking about who benefits from our society. We can compare it to some hypothetical state of nature if you want, but I think it makes more sense to compare it to other societies that actually exist.

You are correct. And among other developed first world nations, we are dead last for how we treat our poor, income inequality, education, worker compensation, vacation time, sick time, health care.

Continue to compare ourselves to third world countries to make a point, we'll continue to laugh. You can only do that because First World Countries are kicking our butt.